Carbon tax too expensive’, says industry

Ministers are under renewed pressure to scrap their controversial green “carbon
tax” after delays in European Union state aid left British heavy industry
without promised protection from the costs of the levy.

The Government promised that energy-intensive industries would be offered a £100m compensation package to protect them from the unilateral tax, which was introduced last April.Photo: Reuters

Tata Steel and BASF have warned that the so-called carbon price floor — levied on fossil fuels used in power generation — is putting them at a competitive disadvantage.

The Government promised that energy-intensive industries would be offered a £100m compensation package to protect them from the unilateral tax, which was introduced last April.

But the compensation has been held up for several months awaiting EU state aid approval, with businesses already facing millions of pounds in costs. Ministers said last October that they expected EU approval “by the summer of 2013”, but last night disclosed the earliest a resolution would come would be the end of this year.

If approval were rejected, it could call the whole tax into question. Industry hopes that the Government may be prompted to review the tax, especially after the Conservatives indicated that they were looking to mitigate rising energy costs in the wake of Ed Miliband’s price freeze pledge.

“We shouldn’t put British industry at a disadvantage against Europe and the US: for our manufacturers this would be assisted suicide,” Michael Fallon, the energy minister, said last week.

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Karl Koehler, chief executive of Tata Steel, which employs 18,500 people in the UK, said: “Unilateral taxes like the carbon price floor hurt competitiveness. I welcomed the Government’s energy tax mitigation package, but the delay in its implementation caused by the EU state aid process harms UK manufacturers.”

Andrew Mayer, head of UK public affairs for BASF, the world’s leading chemical company, which employs about 2,000 people in Britain, said: “Without clarity on state aid approval for energy intensive rebates from the CPS [carbon tax] we are facing a 5pc rise in our energy costs today and 20pc from April 2015.

“Even with that clarity, many of our customers and smaller sites are still facing that increase. It is an unsustainable policy that is damaging UK competitiveness. It should be scrapped,” he continued.

The carbon tax was originally intended to encourage new low-carbon power plants such as wind farms and nuclear sites by making it increasingly expensive to run coal and gas works that emit carbon.

But it has failed to secure the low-carbon investment — with ministers now offering developers additional subsidy packages — and critics say it simply serves to push up the price of electricity. Official estimates say that the tax, which is expected to raise billions of pounds for the Treasury over the next decade, will add £5 to household energy bills this year, rising to about £50 by 2020, even before the costs of compensating industries have been implemented.

Tony Cocker, chief executive of energy supplier E.On, has described it as a “stealth poll tax” that would hand windfall gains to existing nuclear plants. In a meeting with business leaders in February, before becoming energy minister, Mr Fallon called the carbon tax “a fairly absurd waste of your money”, mistakenly saying that the policy had been inherited from Labour.

A spokesman for the Department for Business, Innovation and Skills said it had notified the European Commission of the carbon price floor compensation scheme in September 2012.

He said: “The formal consideration and approval of the case has so far been delayed due to the novelty of the case and internal resourcing issues within the Commission. We will continue to work with them to ensure that the CPF state aid case is approved as soon as possible.”

He added that it will explore whether businesses might be able to claim back part of the compensation to last April. “The Commission has advised that the earliest that they can come to a decision on this case is the end of the year,” the spokesman said.